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19 Cards in this Set
- Front
- Back
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Motivations for Investing in Income Properties
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1. Rate of Return
2. Price Appreciation 3. Diversification 4. Tax Benifits |
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Real Estate Cycle
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the cyclical nature of the real estate industry as background material for the more specific investment styles and strategies
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Real Estate Cycle Underlying Facts
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1. It is a very large market, in terms of both the number of properties and the square footage
2. It is highly competitive 3. Ownership is highly fragmented |
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Cycle of Overdevelopment
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Because of the highly competitive nature of the industry and its difficulty in forecasting demand, there are certain times when excess supply is unintentionally produced, thereby increasing vacancy rates, reducing rents, and causing volatility in property values
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Investing Strategies
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1. Core Properties
2. Core Properties with Value Add 3. Sector Investing 4. Contrarian Investing 5. Market Timing 6. Growth Investing 7. Value Investing 8. Strategy as to Size of Property 9. Strategy as to Tenants 10. Arbitrage Investing 11. Turnaround/Special Situation 12. Opportunistic Investing 13. Investing in "Trophy" or "Blue Chip" Properties 14. Development |
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Strategy - Investing in Core Properties
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acquiring existing, seasoned, relatively low-risk properties
*Properties are at least 80% leased to tenants with good credit *These properties may also be acquired as a foundation for building a larger portfolio *The goal is to realize a relatively stable cash flow with returns that are competitive with comparable properties *This strategy DOES NOT include any major changes in operation or major capital improvements |
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Strategy - Investing in Core Properties WITH a "Value Add" Strategy
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combines core investment with a strategy to:
a) make changes in the management of the property with a releasing program b) by making some specific capital improvements *the changes tend to be very specific and are targeted toward increasing rents and outperforming competing properties in the same submarket |
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Strategy - Property Sector Investing
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based on the belief that over the long term, based on economic and demographic research, one property type will outperform other property sectors
*After the sector is chosen, then, specific properties in specific cities and locations would be acquired (based on market research) |
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Strategy - Contrarian Investing
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Investors wait until properties become available at very low prices due to overreact to negative news from external events, and then purchase them with the expectation that after other investors realize that this property sector has been oversold, a price recovery will occur
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Strategy - Market Timing
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respond (buy and sell) to perceived real estate cycles for each property type
emphasize current supply/demand or cyclical conditions in the evaluation of property markets AKA "rotation strategy" |
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Strategy - Growth Investing
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***MARKET RESEARCH
*based on beliefs that economic conditions favor demand for specific property types in specific growth markets *focus on realizing superior returns from price appreciation in specific property types in specific growth markets *more risky |
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Strategy - Value Investing
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Research is focused towards finding those properties that have been "overlooked" by investors that appear to be undervalued
*look for properties with the ability to produce greater than-expected income and appreciation |
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Strategy - as to Size of Property
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based on a preference for a subsector within a property type
*investors believe that they can better understand the operation of tenant-users and, therefore, better understand the demand for space in that subsector |
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Strategy - as to Tenants
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*preference for properties leased to:
a) multiple tenants *may prefer to take the higher risk of tenant tenant turnover because of the ability to adjust rents to market levels more frequently b) single or very few tenants *forego adjustments to market rents because they are less risky due to low tenant turnover and to the creditworthiness of tenants |
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Strategy - Arbitrage Investing
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based on the ability of investors to recognize differences in prices that buyers are willing to pay for the same real estate investments in different markets.
Ex. buy in private markets and then earn a profit by creating a publicly traded entity, such as a REIT AND VICE VERSA |
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Strategy - Turnaround Investing
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Based on the belief that successful investments can be made by investors who see opportunities by CHANGING OR MODIFYING the use of existing properties
EXAMPLES a) underperforming - intensive leasing, renovating, and property management - then sell one at a time b) Acquiring a firm and selling its real estate - then lease the necessary space *the value oft he business after the separation would be greater than the previously combined entity |
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Strategy - Opportunistic Investing
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acquiring properties from investors in financial difficulty or properties needing renovation, upgrading, or repositioning.
Success depends on: 1) ability to purchase properties at a discount 2) understanding of management and how to upgrade, modify, or perhaps reposition (ex. = office to retail use) 3) dependent on an exit strategy such as: *market acceptance of repositioned assets *ability of buyers to obtain financing to purchase such assets |
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Strategy - "Trophy" or "Blue Chip" Properties
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Long term
Similar to Value Investing Focus on properties with some unique historical, architectural, or locational attribute that will provide for a good investment in the LONG TERM |
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Strategy - Development
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Involves the acquisition of land, design of the building, and a leasing program to reach stable occupancy
*Value creation - more risky |
